Intel CPU Shortage Expected to Ease in June

Intel’s CPU shortage has hit the PC market hard the last six months, but while it’s expected to linger into the back half of the year, it’s also expected to start improving before too much longer. Intel made a strategic decision to de-prioritize shipments of low-end CPUs, effectively ceding some of this space to AMD. Instead, the larger company focused on its highest-end markets and first-tier partners, ensuring an adequate supply of chips to these divisions and partners, while other companies building lower-end parts have turned to AMD.

Intel has informed its partners that it expects shipments to start picking up in Q2. We’ve seen AMD picking up more space in the Chromebook markets, with its first Chromebook-aimed APUs. Reviews of these platforms have suggested they offer better GPU performance but slightly worse CPU performance, with the overall experience being basically a wash. That’s good news from the perspective of whether customers will notice that they aren’t buying an Intel chip — they won’t — but it doesn’t really give AMD an advantage to discuss, either. Fielding chips that match Intel in Chromebooks in terms of battery life and overall perf, with minor differences, isn’t a huge win for brand awareness beyond establishing parity.

Brands like Lenovo, Dell, and HP are likely to shift back towards Intel low-end chips as the company makes them available, while smaller brands may continue using AMD hardware for the foreseeable future until the shortage ends for good, according to a recent report. Some manufacturers have noted that Intel’s shortage hit the market harder for them than any sales slowdown, like Compal.

PC sales by vendor through Q1 2018. Sales at major vendors — Intel’s top priority — have fallen much less than sales at smaller companies.

All of these predictions could founder depending on what happens next in the US-China trade dispute, however. The battle between the US and China is apparently heating up. Reports suggest that China substantially modified its negotiating position last Friday, ahead of an upcoming visit by Vice Premier Liu He on Thursday. China reportedly modified or withdrew from previously agreed-upon principles or talking points that were guiding the negotiations. President Trump has, in turn, threatened to impose additional tariffs, with tariffs on $200B worth of Chinese goods expected to increase from 10 percent to 25 percent this week, and an additional $325B worth of Chinese goods if the Chinese do not change their negotiating strategy. The Chinese, for their part, have stated:

The escalation of trade friction is not in the interests of the people of the two countries and the people of the world. The Chinese side deeply regrets that if the U.S. tariff measures are implemented, China will have to take necessary countermeasures.

It is unclear how these events will impact the tech market because it isn’t clear which products would be selected for tariffs. Up until now, tariffs have been applied selectively, with certain products like mobile devices exempted, and certain other classes of products (like video cards) non-exempt. A true blanket tariff on all products imported from China would impact the US market very differently than a tariff that targets specific finished goods.

The problem the US and China both face is that while the trade issues between the two countries are real, so is the degree of interdependency between us. A great deal of tech manufacturing is now handled in mainland China, and there’s no quick or easy fix for that. At the same time, all of the advanced CPU design firms and manufacturers are either owned by US companies or are headquartered in nations that are close geopolitical allies of the United States. China does not yet have the fab capacity or the CPU design expertise to cut itself off from ARM, Intel, and AMD, even if it wished to do so. Even if Apple wanted to transition to building smartphones outside of China, it cannot simply snap its fingers and duplicate the supply chain and expertise that took it years to construct in the first place.

It is not at all clear how all of this ends. To date, the Chinese and US diplomats have kept the discussion moving forward and avoided a truly nasty outbreak of hostilities (in trade terms, this would look like a ratcheting series of tariff declarations and increases). If this pattern continues, the disruption to existing markets should be small. If our respective countries can’t resolve the situations, however, prices could start increasing. Many companies that have absorbed the 10 percent hit on behalf of their customers to date might find a 25 percent tariff too much to handle without passing on increased prices.